Key Audit Matters (KAM)
In the past, some firms of accountants would discuss Key Audit Matters either at the planning stage of the audit and at the end of the audit with some updates being provided on the topic during the audit either in the context of things moving as expected based on:
- Past knowledge of the client: what was important to their business, suppliers, vendors (Porter's 5 Forces - https://www.bing.com/search?q=porter%27s+five+forces&form=EDGTCT&qs=SC&cvid=df6d7bf411a24563a5e5cfdb89b3289a&refig=a014fdd666d34e2e8ecfe23347f7b1f6&cc=US&setlang=en-US ) their people: retiring or incoming persons; key and or material from the point of view of salaries, benefits and other considerations and the possible impact on the company,
- Updates in the industry in which the client operates: what has happened in that industry or what may happen within three months of the end of the financial year. These conditions can have an impact on estimates, values, expectations and the need for cash or the need to obtain additional sources of funding.
- Updates on the world economy: What has emerged from a technological point or what agreements have been signed globally, such as the Paris Climate Agreement which may take a number of years to implement and for which there may be updates. Linking the impact of these agreements to the possible impact on the company or the country may add value to the audit.
- Changes in local operating conditions: the emergence of or decrease in the number and size of competitors,
Some of the KAM's may have been positioned in other terms such as Risk and over the years terms may have changed, so that what may have been termed a potential error may have become a Risk and may not be a KAM.
However according to the article which may be accessed via the link, details on KAM are included in the Audit Report and has increased the information which is to be provided to the shareholders, investors, the users of the financial statements and such. What is noteworthy in addition to the KAM is that compensation of auditors may be subject to change based on the use of their technical knowledge now and going forward.
However, here is an extract from the article which was written by Phillip Smith: "At a time when investors, regulators, even preparers and auditors, complain that financial reports have become too long, it seems ironic that auditors are now required to provided much longer, more detailed reports. Since December 2016, and in the case of the UK some time before this, auditors who are governed by International Standards on Auditing (ISAs) have had to produce extended audit reports for their listed clients. The move has marked a shift away from the binary, two-page audit report to one that provides unprecedented levels of transparency of the work carried out by the auditor."
Here is access to the article via the link: